Presenting The Minterest Risk Analysis Tools
Dear community, protecting the interests of users will always be an integral part of the Minterest protocol, so this post is a sneak preview of what’s to come once the protocol goes live. Here, we will discuss risk assessment tools that provide refined strategies in a convenient format to make lending/borrowing risks more transparent.
Risk Analysis: Why is it important?
One of the most significant risks when using any DeFi lending protocol is the risk of liquidation, which occurs when a loan becomes insufficiently collateralised, i.e., when a user’s collateral value falls below a given threshold. Liquidation is a highly unfavourable outcome for borrowers because their positions are reduced, resulting in losses.
All loan positions in the Minterest protocol are over-collateralised, meaning that the collateral value is greater than the amount borrowed. If market movements result in an under-collateralised loan position, a users collateral gets liquidated to repay the loan in a critical situation. Such a situation occurs if the Collateral Ratio, which is the ratio between the borrowed loan amount and the supplied collateral, is greater than the allowed proportion for the user’s lent assets.
Liquidation is one of the significant risks of leverage in any position, at the time of borrowing. Due to the volatility of many cryptocurrencies, liquidations occur regularly in DeFi.
That’s why the Minterest protocol offers risk analysis tools; they ensure users have more insight over their positions.
Risk Analysis Tools Walk-through
The Minterest Labs team is working to build the best lending/borrowing platform in the DeFi space. Part of this involves a Portfolio Dashboard to give users a clear overview of their positions on Minterest. Even though the dashboard has many attributes, we will focus on three main risk assessment features our users can access.
Feature #1: Notifications
Users want to make the most of a DeFi protocol, taking leveraged loans without excessive risk of being liquidated. The main reason behind any liquidation is a lack of sufficient collateral, which happens when users don’t pay enough attention to their collateral ratio. However, with notifications, users can more easily be aware of any changes in their risk profile due to market movements.
The Minterest notifications feature is designed to help users reduce the risk of being liquidated while also saving them time. In addition, notifications can remind users when they need to participate in protocol governance. Users can set notification alerts in two ways — via e-mail or Telegram. Custom notifications will let them stay ahead of the game whenever their attention is required.
Imagine if a user set up a Liquidation Risk Alert and their risk on collateral changed significantly. Timely notification would allow them to increase their collateral ratio to avoid liquidation or take other reasonable steps to preserve capital.
Feature #2: Collateral Ratio Gauge
The Collateral Ratio Gauge feature is like a forward-looking radar that estimates the collateral ratio that will result if the user takes a lend or borrow action, before they take that action. For example, if a user wants to open a position but the challenge is that they don’t know how a new position will impact their portfolio. Instead of taking chances, they can use the collateral ratio gauge tool before making a decision. It will display how their collateral ratio may change depending on the position they want to open.
Feature #3: Liquidation Risk Gauge
The Liquidation Risk Gauge is another feature, it works like a forward-looking radar, an index estimating the probability that a user will have a liquidation event over the course of the next year. The Liquidation Risk Gauge is based on the user’s current portfolio, using the prior year’s market movement data for the assets utilised, to calculate the probability for a potential liquidation event in the user’s portfolio. The user can see this Risk Gauge before they take any lend or borrow action, helping them to “look forward” and anticipate how their portfolio could be impacted by typical market movements.
Feature #4: Portfolio Back-test Risk Analysis
Using a Portfolio Back-test methodology, Minterest users will also be able to see how their current portfolio would have fared through the market movements of the past year, giving a useful indication of how it might fare in the coming year, helping users to make solid and informed decisions. Historical back-test portfolio analysis is a unique feature not available elsewhere in DeFi.
Join our Twitter Spaces on Friday, Apr 22 with our CPO David Esser to learn more about our risk analysis tools.
Minterest is a unique borrowing/lending protocol built by industry leaders to service the billions in Total Value Locked (TVL), in DeFi lending projects, with the specific aim of putting user benefits at its core. It provides users with a decentralised financial platform that is fair and inclusive.
The Minterest protocol has the world’s first buyback mechanism, which automatically passes on surpluses to participating platform users. This way, users get protocol rewards on top of industry leading borrowing/lending rates, creating the potential for the highest long-term yields in DeFi. The protocol also has an on-chain treasury which captures and passes on liquidation surpluses to users.